Risk & Business Magazine JGS Insurance Fall 2021 - Page 13


The June 24 , 2021 , collapse of the Champlain Towers South Condominium — a 12-story , 136-unit beachfront condominium in the Miami suburb of Surfside , Florida — if it has not already , will become a defining moment for condominium associations across the country . Prior to the collapse , associations managed their buildings with varying degrees of attention . Associations with strong management , strong leadership , and residents who understand that older buildings don ’ t hold up forever without proper planning and maintenance , have done well and will continue to thrive . Associations without strong oversight ( including regulatory ), inadequate reserves , a reluctance to increase assessments to fund reserves , infrequent or a lack of any reserve study , apathy among residents , or worse , opposition from owners , are likely to face problems in the future .

While it could take months and possibly years until we understand fully what caused the collapse of the tower — the cause could be a combination of factors , including porous limestone soil , rising tidal waters , construction errors including a lack of slope on the pool deck and either inadequate or a lack of waterproofing , and poor oversight from local officials — strong evidence suggests the building was allowed to fall into disrepair over some period of time . Champlain Towers South had known , at least since October 08 , 2018 , when Morabito Consultants , a Sparks Glencoe , Maryland-based engineering consulting firm hired by the Association in advance of its 40-year recertification , advised the Board of more than $ 9 million in estimated costs that would be required to make extensive repairs . The report noted that “ abundant cracking and spalling of varying degrees was observed in the concrete columns , beams , and walls ” including the topside of the entrance drive ramp and the underside of the pool / entrance drive / planter slabs , which included areas with exposed , deteriorating rebar . “ Though some of this damage is minor , most of the concrete deterioration needs to be repaired in a timely fashion ,” the report warned .
The Association , however , failed to take steps toward any meaningful work . Citing frustration with not having been able to move the project forward because of “ egos , an undermining of the roles of fellow board members , circulation of gossip and mistruths ,” and the stress and emotional impact of serving on the Board , the Association ’ s president resigned September 14 , 2019 . In five years , in fact , the Association had five presidents and five vice presidents . By April 2021 , the Association had gained the necessary votes among the members to move forward with repairs , and it had commenced a roof project , but by then , the combined costs for repairs had grown to nearly $ 15 million .


From tragedy , however , can come change . The Community Associations Institute ( CAI ), an international membership organization in Falls Church , VA , that provides education and resources to homeowner volunteers and the professionals who support them , has convened a special task force to develop best practices , public policies , and education initiatives in three critical areas including Reserve Studies and Funding , Structural Building Integrity and Inspections , and Insurance and Risk
Management . Reserve studies — and more importantly a requirement to fund reserves — are not conducted among associations with any consistency . Locally , New Jersey law stipulates that associations need to have adequate reserves but does not require capital reserve studies to be done on any regular basis . Pennsylvania allows Boards to adopt budgets that include reserves , but it has no requirement for a study or a reserve fund . And while Virginia requires associations to undertake a reserve study at least once every five years , only Prince Georges County ( effective October 2020 ) and Montgomery County ( effective October 2021 ) in Maryland require reserve studies and reserve funding . The District of Columbia has no statutory requirement to conduct a reserve study or fund reserves .
Not surprisingly , reserve study and reserve funding laws are woefully lacking in most states , with only nine states requiring reserve studies , and of those , only four have true reserve funding requirements . Delaware is among those few states with a strong reserve study and reserve funding law . Some states ’ laws seem not to make sense . While the Florida Condominium Act requires a reserve schedule for major repairs and assigns Associations a statutory duty to maintain and repair , the reserve funding requirement is diluted by the allowance of a majority vote not to fund . Arguably , a true statutory requirement to fund reserves along with greater discretionary spending powers for the Board for urgent maintenance might have been the backstop the Champlain South Board needed to move forward .
While reserve requirement changes may be coming , perhaps even on a federal level , many associations are anxious to understand the insurance ramifications of the Surfside collapse . Will insurance protect them from a similar situation ? And what should they be doing differently to avoid serious loss ? Because Boards have a fiduciary responsibility to maintain the Association ’ s structures , it is important to understand